Gulf Resources, Inc. (NASDAQ:GURE)

Gulf Resources, Inc. (NASDAQ:GURE) Regulatory Scrutiny Rattles Investors

Gulf Resources, Inc. (NASDAQ:GURE)

Gulf Resources, Inc. (NASDAQ:GURE) felt the wrath of Wall Street after announcing the closure of its Bromine, crude salt and chemical Chinese factories for rectification and improvement. The stock came under immense selling pressure, dropping 17.9% to end Thursday’s trading session at $1.64 a share.

Gulf Resources, Inc. (NASDAQ:GURE)
One month GURE stock price chart

Stock Sell Off

The sell-off saw the stock drop from highs of $2.00 after having rallied by more than 20% last month. The stock is currently trading in a $1.60 – $2.00 trading range. A close below the trading range could see the stock end up around the 52-week low of $1.53 a share.

Gulf Resources, Inc. (NASDAQ:GURE) is a holding company that specializes in the manufacture and sale of bromine and crude salt used in oil and gas field exploration. A sell-off of the stock comes to growing concerns about the potential impact of increased government scrutiny on the company.

Regulatory Scrutiny

Early last month, Gulf Resources, Inc. (NASDAQ:GURE) warned that a move by the government to enforce stringent environmental rules could significantly hurt its operations and earnings. The company’s subsidiaries, Shouguang City Haoyuan Chemical Company Limited, and Shouguang Yuxin Chemical Industry Co., Limited have since received letters from Yangkou County, Shouguang City.

In the letter, the local authorities order the immediate shutdown of the company’s production facilities pending rectification and improvements in accordance with new safety and environmental protection. The order comes even on Gulf Resources reiterating that its facilities were fully compliant.

“These are very interesting business situation,” Mr. Liu Xiaoping, the CEO of Gulf Resources, Inc. (NASDAQ:GURE) stated. “With most of the factories in industries such as mining and chemicals closed, there will be many people unemployed. In addition, these basic industries provide products for downstream industries. If they cannot produce products, downstream industries will also have to close.

Shutdown Impact

Gulf Resources, Inc. (NASDAQ:GURE) is currently in discussion with the local authorities as it seeks to resolve the standoff. The company says it might have to purchase new equipment and utilize modern technology, with respect to its bromine production, if it is to meet the environmental requirements.

Investments in new equipment for better waste water treatment among other investments could cost the company between $15 and $30 million. However, it remains unclear the kind of impact the shutdown will have on earnings and capital expenses.

The Chief Executive Officer is confident that the Chinese government will move with speed to complete inspections and agree on the necessary remediation and upgrading.

I have no positions in any of the stocks mentioned, and have no plans to initiate any positions within the next 72 hours. All information, including any data, is provided without any guarantees of accuracy.

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About the author: Steve Clark is a 23-year Wall St professional with stints in M&A, risk management, and algorithm trading. Steve keeps his head in the game by looking for, and writing about, small companies that often get overlooked by the big investment firms.